Bitcoin (BTC) holdings on exchanges have reached levels last seen during the 2017 all-time high, signaling a significant shift in investor behavior. According to data from on-chain analytics firm Glassnode, less than 12% of the total BTC supply now resides in exchange wallets.
During the 2023 BTC price surge, Bitcoin had returned to exchanges, with BTC/USD more than doubling from its cycle lows. However, since late April, there has been a reversal in this trend, with a steady outflow of coins from exchanges. This month, the outflow hit a milestone.
As of July 10, only 11.59% of the available BTC supply is held in known exchange wallets, a level not seen since mid-December 2017 when Bitcoin reached its previous all-time high of $20,000. This decrease in exchange balances indicates a growing trend of investors storing their BTC in decentralized wallets for long-term holding.
“The fact that only 11.5% of Bitcoin supply is left on exchanges is the lowest in over 5 years,” said William Clemente, co-founder of crypto analysis firm Reflexivity Research. This shift suggests that investors are becoming more confident in holding onto their Bitcoin and are anticipating further price appreciation.
In terms of BTC, exchange balances have now returned to the levels observed in March 2018, with known wallets currently holding a total of 2.252 million BTC. This represents a significant decline since the March 2020 cross-market crash, when BTC balances on exchanges more than halved.
Analysts believe that this ongoing trend of decreasing exchange balances is a strong indication that Bitcoin is on the cusp of true price discovery. Joe Burnett, head analyst at mining firm Blockware, noted that the exchanges are being drained of their BTC reserves. This suggests that the supply of Bitcoin available for trading on exchanges is dwindling, potentially leading to increased scarcity and upward price pressure.
In addition to the decreasing supply on exchanges, there has been an increase in the number of Bitcoin whale entities, which are individuals or organizations holding large amounts of BTC outside of exchanges. Since late April, approximately 40 new whales have emerged, and on July 7, their numbers reached the highest level since the FTX meltdown in November 2022.
The dwindling supply of BTC on exchanges has led to speculation about a potential BTC price squeeze, driven by declining supply and increasing buyer demand. There is also growing anticipation that the United States may soon approve a Bitcoin spot price exchange-traded fund (ETF), which could further boost demand for Bitcoin.
Moreover, advancements in the field of artificial intelligence (AI) are expected to have a similar effect on Bitcoin’s price over time. The combination of decreasing exchange balances and the emergence of new Bitcoin whale entities suggests a shift in investor sentiment towards long-term holding and confidence in Bitcoin’s future value.
While the exchange outflow trend continues, there is an interesting exception in the form of mining pool Poolin. It continues to send significant amounts of BTC to Binance, bucking the overall trend of decreasing exchange balances.
This decrease in exchange balances and the increase in Bitcoin whale entities highlight a changing landscape in the cryptocurrency market. Investors are increasingly opting to hold onto their Bitcoin rather than trade it, signaling a growing confidence in its long-term value and potential for further price appreciation. With the ongoing scarcity of BTC on exchanges, Bitcoin is indeed on the cusp of true price discovery.